" . .
. practically and analytically a credit theory of money is possibly
preferable to a monetary theory of credit."
Joseph A. Schumpeter, History of Economic Analysis (1954:717)

(joint authorship, outline by Geoffrey Gardiner)

1. The differentiation of human labour made a credit system essential for the
free exchange of goods and services. A direct barter system was inadequate for
the fullest possible development of the potential of human industry.

2. The most potent form of credit was trade credit advanced by one supplier in
the chain of production to the next in line.

3. The debts created by the granting of trade credit are monetised, that is
they become a means of exchange. The bill of exchange in all its forms has
throughout human history and pre-history been the way of achieving this object,
converting a trade debt into a negotiable instrument which is usable as money.

4. All money is debt, but not all debt is money, though all debts have the
capability of becoming money, a means of exchange, by being made assignable.

5. Money therefore consists of assignable debts, whether it is being used as a
medium of exchange or as store of claims on value.

6. Money is therefore created by the granting and drawing down of loans.

7. When a bank allows a loan to be drawn down, at the same time the credit
balance to finance the loan is automatically created somewhere in the banking
system.

8. Savings are retained financial assets, though the period of retention may be
brief or long. As all financial assets are forms of credit/debt, savings
automatically come into existence when a new loan is drawn down.

9. One of the purposes for which a loan may be granted is real investment, that
is the creation of new productive assets. It follows that the savings to finance
real investment must be created automatically by the spending of a loan to
create a new productive asset.

10. Savings = borrowings (The definition of borrowing in this context includes
equity finance).

11. The encouragement of saving automatically encourages an equal amount of
borrowing. There is no reason at all why the borrowing should be solely for the
purpose of real investment. Among the many assets it may finance are debtors,
work in progress, stocks, or consumer credit.

12. The only way to promote real investment is to create a favourable
environment for it.